Memphis High End Property (Collierville)...WWYD?

4 Replies | Memphis, Tennessee

Hi,

I'd love to hear any suggestions or ideas for my situation...TIA

I own a large home (4000 sq ft, 5 bed, 3.5 bath, nice pool and waterfall). Homes in my subdivision are selling for about $470-$500K.

I’ve had tenants in the home for 4 years. They would like to extend for 5 more years. Great tenants, always pay on time, professionally managed.

I am having trouble finding comparable rents. They have been at the same rent that I have been charging since 2015. I need to raise their rent. Currently, they pay $2400.

Eventually, I would like to sell the home and I thought the tenants might rent to own but that isn’t going to work.
I’m trying to decide what rent to charge and also if I should try to sell with a long term lease in place? It was built in 1997 so I think things are going to need some major repairs in the next few years. Also, I could do a lot more with the money I can get if I sell the home.

Hi @Cj Powderhorn , it seems to me like comps don’t rally matter here so much.  These tenants have lived there for 4 years and are up for renewing and staying a while longer.  Currently it is a very advantageous time to sell most types of homes and it seems like a “miss” to not increase the rents AND miss this potential opportunity to sell.

I would look to increase the rent at least 10% for the next term (probably not more than that because the sticker shock will be jolting).  Otherwise I would increase the rent 3% over the last lease amount and 2-3 percent in the subsequent years of the 5-year lease.

The happy news is:  if the tenants don’t like that then it’s a great time to sell.  If they do like that then you have a proven tenant and increasing cashflow.

Hi Cj- We have several homes in Collierville that are about the same square footage bed/baths pool etc and we manage and we rent them for $2800-$3200/mo. That is quite a large jump from what they're currently paying now, but they wouldn't be able to move to a like property for probably anything less than $2800 or so I would guess. Most of these higher end homes rent very quickly because of the schools as you probably already know. I live in Collierville myself and the rental market is crazy as the housing market. Hope this helps!

@Caleb Parr @Will Fraser

Thanks for the advice.  I was thinking I would raise it to $3000 but that may be too big of a jump. If I put in something for inflation every year, that may work. I guess the other option is to put it were I think it should be and if they decide to move, that's up to them. It's in Rosewood Plantation, if that helps...

Maybe do a 2yr lease. I would raise it to $2800 the first year, then do $3000 the 2nd year. You can decide what you would like to do after that 2nd year. I'm not a fan of doing leases longer than 2 years because every ones situations change. Just my 2 cents. Good luck!